NZ Herald 16 December 2017

AKia ora to you too. And warm congratulations for making considerable contributions to KiwiSaver while living on ACC payments. You’re showing up many people on higher incomes!

Good on you, too, for wanting to make the best of the scheme.

You’re already contributing easily enough to get the maximum $521 tax credit from the government each year. You have to contribute $1043 to get that, and you’re putting in $5200.

The tax credit will stop when you turn 65, or when you’ve been in KiwiSaver for five years, whichever comes later. At that point, you’ll be able to start withdrawing your money. You can take out the lot in one go, leave it all there, or dip into it — just like a bank savings account.

With some providers you can also set up a regular transfer from KiwiSaver to your bank to boost your spending money. Whether you want to do that might depend on how NZ Super compares with your current income.

The Super payments will start when your ACC payments stop. Current fortnightly payments are: $900 ($780 after tax at the lowest tax rate) if you live alone; $827 ($720 after tax) if you’re single but sharing a home with others; and $682 each ($600 after tax) if you’re married or in a de facto relationship and are both eligible for Super.

If that’s more than you’re getting now, you might not need extra regular income after 65. Instead, you might want to use some or all of the money for a one-off expense, such as updating your car — whilst perhaps keeping some in KiwiSaver as emergency money.

It’s useful to have an idea of when you will spend the money, as that helps us decide whether you’re in the best KiwiSaver fund for you.

Usually I would refer you to the KiwiSaver Fund Finder on the Sorted website to work this out. But you mailed me a handwritten letter, which suggests you don’t have easy access to a computer.

So let’s go through the first step of the Fund Finder’s process — as best we can — here in the column. Hopefully this will also alert other readers to how useful that tool can be, and what to take into account when selecting a KiwiSaver fund.

Under “Find the right type of fund for you”, you answer three questions, as follows:

1. How long before you expect to start spending your KiwiSaver money — for a first home or in retirement?

• 0–3 years
• 4–9 years
• 10 years or more

2. What’s most important to you while you’re saving?

• Getting back at least as much money as I put in
• Almost certainly ending up with more than I put in, despite some ups and downs along the way
• Likely higher returns over the long term, even if that means big ups and downs in some years

3. What range of gains and losses are you comfortable with over a single year?

• 0 to 5 per cent gain
• 10 per cent loss to 20 per cent gain
• 30 per cent loss to 100 per cent gain

If we were online, your answers would be scored, and then you’d be told which type of fund — defensive (the lowest risk), conservative, balanced, growth or aggressive (highest risk) — suits you best.

On paper, it’s more approximate. But if you mainly tick the first answers, you should go with a low-risk fund, and if you mainly tick the third answers, you should go with higher risk. However, put most weight on the first question. Regardless of your other answers, if you’re planning to spend the money within three years you should be in a defensive or conservative fund, and if it’s within four to nine years you should be in a defensive, conservative or balanced fund.

This process — working out the right risk level for you — is the single most important step to take. If you don’t know which risk level you’re in right now, ring Westpac and ask. If it’s different from the one this exercise shows you, ask Westpac to move you.

Beyond that, it’s also really good to see if Westpac is the best provider for you — and if not to move to the best one. The KiwiSaver Fund Finder helps you do that too, in a second step. Under “Compare funds” you can look at all the funds of your type — such as defensive or conservative — ranked by fees, services and returns.

But there’s no good way to do this without a computer. Perhaps a friend or relative, or your local library or Citizens Advice Bureau (CAB), could help you do it online. If so, I suggest you put most emphasis on a few providers that charge the lowest fees.

Good luck with this. If you can’t take that second step, you will still go a long way towards getting the best out of KiwiSaver by getting into your best type of fund.

APutting extra into KiwiSaver is a great way to boost your account’s growth. The only negative is that you won’t be able to take it out again until you’re 65.

If that’s a concern, ask your KiwiSaver provider if they have a similar non-KiwiSaver fund, and invest in that.

You can set up a regular transfer from your bank account to your fund — KiwiSaver or otherwise.

One note of caution: While most KiwiSaver funds have performed well in recent years, the markets could turn down at any time. See what I said above about sticking with lower-risk funds if you’re planning to spend your money fairly soon.

AWe’re venturing into little known territory for me here. And one of my basic rules is not to invest if I don’t understand where the returns will come from.

With bonds, someone pays me interest for the use of my money, plus extra to compensate for the risk I’ve taken investing in them. With shares, I get a share of the company’s profits, plus a gain if the profits are expected to increase. With investment property, I get rent, plus a gain that ultimately reflects expected growth in rent.

With bitcoin, cars and number plates, ummm — I’m not sure really. So I’m on the sidelines for all the cool stuff.

I suspect people who know what they’re doing sometimes make good returns on personalized plates and paintings, and perhaps even cars and yachts, although they usually depreciate. But I also suspect they sometimes make big losses. It’s just that they don’t skite about those ones, so we don’t hear about it.

Bitcoin? We’ve all been reading about the meteoric price rises. And there may be more big gains to come. But who knows when to get out, before the inevitable plunge? For all that bitcoin has a real purpose, it can’t possibly be that valuable, can it? And it’s not as if you’re earning interest or dividends in the meantime.

If you’re dying to join the cool cats, go for it with money you might otherwise put into a lottery or a casino. But not the money for the kids’ school shoes. Cool can turn icy cold, and bare feet aren’t fun in winter.

AThanks for writing. Your basic message seems to be: buy an affordable house somewhere, and keep it — even when you no longer live in that town — just to have a foothold in the property market.

That makes sense, although there are huge variations in how house prices change — around the country and even within a city. There’s no guarantee that your property’s value will rise with properties elsewhere. In your case, you plan to move back to that city, but of course that could change.

Also, being an out-of-town landlord can have its problems, such as when you get a 2 a.m. phone call to say the roof is leaking or the washing machine has flooded.

Still, there’s lots to be said for your strategy.

I note that you had flatmates while saving for a house, and later flatmates to help pay for the house. That can be a great way to make property investing work better — as long as you pick compatible flatmates.